Sunday 31st January 2021
Lost half of the property
Gamestop soaring costs funds billions
In order to dup a hedge fund, small investors band together and cause an unexpected price rush for the Gamestop share. The affected investment company must be rescued by partners. Now an insider reveals: The action has halved Melvin Capital's assets.
The hedge fund Melvin Capital, tricked by small investors at the video game dealer Gamestop, lost more than half of its assets in January, according to an insider. The assets invested by Melvin Capital, which at the beginning of the year amounted to 12.5 billion dollars, had decreased by 53 percent by the end of the month, said a person familiar with the numbers.
Due to the capital injection of $ 2.75 billion with which the hedge funds Point72 and Citadel had saved their partner from collapse, Melvin Capital closed January with assets of more than eight billion dollars. Melvin Capital had bet on a falling price of the Gamestop share with short sales and speculated with it. Because small investors agreed to rush to buy on the Internet, the share price rose, so that Melvin suffered billions in losses.
To sell short, investors borrow shares and sell them in the expectation of being able to buy them back later at a cheaper price and then return them to their regular owners. Your profit is based on the exchange rate difference. However, if the bet goes wrong and the price goes up, a short seller is forced to buy back the stock at any price.
.